Equity fund sales turn positive: Time to take profits?

For the first time in 10 months, net sales of equity funds have entered positive territory, at a time when the UK stockmarket is riding at a record high.

According to the Investment Association's latest statistics covering November 2016, £583 million poured into equity funds over the course of the month.

UK equity funds were the third most popular choice, attracting £114 million of inflows - but it was global equity funds that topped the charts, followed by US equity funds, pulling in £420 million and £244 million respectively.

Improved sentiment has come on the back of stockmarkets so far giving Donald Trump's victory in November's US presidential race the thumbs up. In particular, US and UK stockmarkets have been in fine form, surpassing record highs.

Investors could take fright

The danger, however, is that markets are placing too much faith on president-elect Trump delivering on his big fiscal stimulus plans. If Trump backtracks, or cannot get his spending spree through Congress, the stockmarket rally could turn sour.

Furthermore, as Wesley Sparks, head of US credit strategies at Schroders and manager of the Schroder ISF Global High Yield fund, points out, if soft economic data materialises in the US, investors could take fright.

Consumer spending is a key growth driver that has bouyed the UK economy since the Brexit voteBack in the UK, uncertainty remains over how Britain's divorce negotiations from the European Union will pan out. Since last June the economy has been robust, going against gloomy predictions from economists and pro-'Remain' politicians that a recession was on the cards.

Growth, however, is expected to slow this year, according to the Centre for Economics and Business Research (CEBR), a respected think tank. The CEBR has pencilled in economic growth of 0.8% this year, which represents the slowest pace since the 2009 recession.

The forecast from the CEBR hinges on inflation rising to 2.7% in 2017, which the think-tank says will force consumers to tighten their belts. Consumer spending is a key growth driver that has helped the UK economy put on a resilient showing since the Brexit vote.

Be cautious on UK and US

Another worry is that UK equities are not exactly cheap to buy at the moment, following its strong start to 2017. In addition, due to the composition of the FTSE 100, the index's fortunes heavily rely on the fortunes of four sectors - banks, insurers, miners and oil & gas producers.

Time will tell whether the Trump-inspired stockmarket rally has legs, but at this point in time it is worth remembering the art to successful investing is to "buy low" and "sell high", rather than the other way around.

This article was originally published in our sister magazine Money Observer. Click here to subscribe.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.